The Depression in the United States--An
Overview
The Great Depression
In October 1929 the stock market crashed, wiping out 40 percent of the paper values of common
stock. Even after the stock market collapse, however, politicians and industry leaders continued
to issue optimistic predictions for the nation's economy. But the Depression deepened,
confidence evaporated and many lost their life savings. By 1933 the value of stock on the New
York Stock Exchange was less than a fifth of what it had been at its peak in 1929. Business
houses closed their doors, factories shut down and banks failed. Farm income fell some 50
percent. By 1932 approximately one out of every four Americans was unemployed.
The core of the problem was the immense disparity between the country's productive capacity
and the ability of people to consume. Great innovations in productive techniques during and after
the war raised the output of industry beyond the purchasing capacity of U.S. farmers and wage
earners. The savings of the wealthy and middle class, increasing far beyond the possibilities of
sound investment, had been drawn into frantic speculation in stocks or real estate. The stock
market collapse, therefore, had been merely the first of several detonations in which a flimsy
structure of speculation had been leveled to the ground.
The presidential campaign of 1932 was chiefly a debate over the causes and possible remedies of
the Great Depression. Herbert Hoover, unlucky in entering The White House only eight months
before the stock market crash, had struggled tirelessly, but ineffectively, to set the wheels of
industry in motion again. His Democratic opponent, Franklin D. Roosevelt, already popular as
the governor of New York during the developing crisis, argued that the Depression stemmed
from the U.S. economy's underlying flaws, which had been aggravated by Republican policies
during the 1920s. President Hoover replied that the economy was fundamentally sound, but had
been shaken by the repercussions of a worldwide depression -- whose causes could be traced
back to the war. Behind this argument lay a clear implication: Hoover had to depend largely on
natural processes of recovery, while Roosevelt was prepared to use the federal government's
authority for bold experimental remedies.
The election resulted in a smashing victory for Roosevelt, who won 22,800,000 votes to
Hoover's 15,700,000. The United States was about to enter a new era of economic and political
change.
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Roosevelt and the New Deal
In 1933 the new president, Franklin Roosevelt, brought an air of confidence and optimism that
quickly rallied the people to the banner of his program, known as the New Deal. "The only thing
we have to fear is fear itself," the president declared in his inaugural address to the nation.
In a certain sense, it is fair to say that the New Deal merely introduced types of social and
economic reform familiar to many Europeans for more than a generation. Moreover, the New
Deal represented the culmination of a long-range trend toward abandonment of "laissez-faire"
capitalism, going back to the regulation of the railroads in the 1880s, and the flood of state and
national reform legislation introduced in the Progressive era of Theodore Roosevelt and
Woodrow Wilson.
What was truly novel about the New Deal, however, was the speed with which it accomplished
what previously had taken generations. In fact, many of the reforms were hastily drawn and
weakly administered; some actually contradicted others. And during the entire New Deal era,
public criticism and debate were never interrupted or suspended; in fact, the New Deal brought
to the individual citizen a sharp revival of interest in government.
When Roosevelt took the presidential oath, the banking and credit system of the nation was in a
state of paralysis. With astonishing rapidity the nation's banks were first closed -- and then
reopened only if they were solvent. The administration adopted a policy of moderate currency
inflation to start an upward movement in commodity prices and to afford some relief to debtors.
New governmental agencies brought generous credit facilities to industry and agriculture. The
Federal Deposit Insurance Corporation (FDIC) insured savings-bank deposits up to $5,000, and
severe regulations were imposed upon the sale of securities on the stock exchange.
Unemployment
By 1933 millions of Americans were out of work. Bread lines were a common sight in most
cities. Hundreds of thousands roamed the country in search of food, work and shelter. "Brother,
can you spare a dime?" went the refrain of a popular song.
An early step for the unemployed came in the form of the Civilian Conservation Corps (CCC), a
program enacted by Congress to bring relief to young men between 18 and 25 years of age. Run
in semi-military style, the CCC enrolled jobless young men in work camps across the country for
about $30 per month. About 2 million young men took part during the decade. They participated
in a variety of conservation projects: planting trees to combat soil erosion and maintain national
forests; eliminating stream pollution; creating fish, game and bird sanctuaries; and conserving
coal, petroleum, shale, gas, sodium and helium deposits.
Work relief came in the form of the Civil Works Administration. Although criticized as "make
work," the jobs funded ranged from ditch digging to highway repairs to teaching. Created in
November 1933, it was abandoned in the spring of 1934. Roosevelt and his key officials,
however, continued to favor unemployment programs based on work relief rather than welfare.
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Agriculture
The New Deal years were characterized by a belief that greater regulation would solve many of
the country's problems. In 1933, for example, Congress passed the Agricultural Adjustment Act
(AAA) to provide economic relief to farmers. The AAA had at its core a plan to raise crop prices
by paying farmers a subsidy to compensate for voluntary cutbacks in production. Funds for the
payments would be generated by a tax levied on industries that processed crops. By the time the
act had become law, however, the growing season was well underway, and the AAA encouraged
farmers to plow under their abundant crops. Secretary of Agriculture Henry A. Wallace called
this activity a "shocking commentary on our civilization." Nevertheless, through the AAA and
the Commodity Credit Corporation, a program which extended loans for crops kept in storage
and off the market, output dropped.
Between 1932 and 1935, farm income increased by more than 50 percent, but only partly
because of federal programs. During the same years that farmers were being encouraged to take
land out of production -- displacing tenants and sharecroppers -- a severe drought hit the Great
Plains states, significantly reducing farm production. Violent wind and dust storms ravaged the
southern Great Plains in what became known as the "Dust Bowl," throughout the 1930s, but
particularly from 1935 to 1938. Crops were destroyed, cars and machinery were ruined, people
and animals were harmed. Approximately 800,000 people, often called "Okies," left Arkansas,
Texas, Missouri and Oklahoma during the 1930s and 1940s. Most headed farther west to the land
of myth and promise, California. The migrants were not only farmers, but also professionals,
retailers and others whose livelihoods were connected to the health of the farm communities.
California was not the place of their dreams, at least initially. Most migrants ended up competing
for seasonal jobs picking crops at extremely low wages.
The government provided aid in the form of the Soil Conservation Service, established in 1935.
Farm practices that had damaged the soil had intensified the severity of the storms, and the
Service taught farmers measures to reduce erosion. In addition, almost 30,000 kilometers of trees
were planted to break the force of winds.
Although the AAA had been mostly successful, it was abandoned in 1936, when the tax on food
processors was ruled unconstitutional. Six weeks later Congress passed a more effective farmrelief act, which authorized the government to make payments to farmers who reduced plantings
of soil-depleting crops -- thereby achieving crop reduction through soil conservation practices.
By 1940 nearly 6 million farmers were receiving federal subsidies under this program. The new
act likewise provided loans on surplus crops, insurance for wheat and a system of planned
storage to ensure a stable food supply. Soon, prices of agricultural commodities rose, and
economic stability for the farmer began to seem possible.
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